Question on calculating the nominal required return, the CFAI and Schweser seems to have different takes: For example, say your required real return is 4.0% and inflation is 2.5%. According to schweser, you nominal required return is 4.0+2.5%=6.5% (basically just add them). In the CFAI, it seems like they want you to multiply them (1.04*1.025)=6.6% I am likely gonna just use the CFAI way of doing it, but am wondering why schweser does it the other way. Also, in the CFA material does it say specifically anywhere how to calculate this, and why to multiplpy instead of just add? Thanks.
bump
first one (additive) is an approximation and second one (multiplicative) is the exact way… schweser is supposedly swearing up and down that both are acceptable methods on the exam, unless you are given specific direction…
both are acceptible
the multiplicative method implies that inflation occurs on the base (1) and the return (4%). this is more accurate. i would use this method every time because CFAI says to use it. also, this is the method that is used in the qbank for schweser. the additive method is just “back of the envelope” stuff to get you in the ballpark. on an IPS, for example, you want to be accurate, not ballpark.
I prefer to use multiplicative, unless I forget it in the heat of moment 
I know hear Cartman from Southpark singing, “In the heat of the moment…”
Unless I get other direction, I’m going to add. Multiplying increases the chance of a calculator error by more than the chance that adding will be unacceptable… if in doubt, say it’s approximately this return.
comp_sci_kid Wrote: ------------------------------------------------------- > both are acceptible agree - if you have had a chance to look at the past papers, the outline answers provide both options.